During this holiday shopping season, the Consumer Financial Protection Bureau (CFPB) has issued a warning to credit card companies about the dishonest tactics they use to attract customers with rewards programs. These tactics include illegally reducing the value of rewards points and airline miles, using small print to nullify earned rewards, employing unclear terms regarding the acquisition of rewards, and complicating the redemption process. The CFPB has also highlighted the excessively high interest rates, along with statement and late fees, associated with retail credit cards.
To aid consumers in making informed decisions, the CFPB has introduced the Explore Credit Cards tool. This tool, built on open data, facilitates straightforward comparisons between over 500 credit card options, offering unbiased and extensive information accessible to all.
CFPB Director Rohit Chopra emphasized the deceptive practices of large credit card issuers, stating, “When credit card issuers promise cashback bonuses or free round-trip airfares, they should actually deliver them.” Chopra criticized these issuers for enticing consumers into expensive cards that increase issuer profits while depriving consumers of promised rewards.
Functionality of the Explore Credit Cards Tool
The Explore Credit Cards tool enables consumers to evaluate different credit cards based on factors such as credit score requirements, interest rates, fees, and rewards. This not only helps consumers choose the card that best fits their needs but also fosters competition among card providers, including smaller companies that might offer more favorable terms.
According to the CFPB, only the 25 largest credit card issuers, along with an additional 125 selected to represent a broader spectrum, are legally required to submit their data to the CFPB. Other issuers are encouraged to share their data voluntarily.
Potential Savings for Consumers
A study by the CFPB revealed that the largest 25 credit card issuers impose interest rates that are 8 to 10 percentage points higher than those charged by smaller banks and credit unions. This difference could mean an additional $400 to $500 in costs annually for the average cardholder.
The situation is even more dire with retail credit cards. The CFPB notes that 90% of these cards have a maximum annual percentage rate (APR) exceeding 30%, a stark contrast to the 38% of general non-retail cards. December figures show private label cards from top retailers carrying an average APR of 32.66%. Moreover, large issuers of retail credit cards often increase costs by charging for paper statements.
Retailers and issuers are frequently involved in profit-sharing agreements, which can drive aggressive marketing of retail cards to consumers, encouraging them to spend more. These practices underscore the importance of consumer vigilance and the value of tools like the Explore Credit Cards tool in navigating the complex landscape of credit card options.
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Passionate about analyzing economic markets, Alice M. Carter joined THE NORTHERN FORUM with a mission: to make financial concepts accessible to everyone. With over 10 years of experience in economic journalism, she specializes in global economic trends and US financial policies. She firmly believes that a better understanding of the economy is the key to a more informed future.
